World Politics

Companies kicked off U.S. exchanges will just list their stocks in China, consulting firm says

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Key Points
  • Fears of Chinese companies being kicked off U.S. stock exchanges will ultimately benefit China, said John Fildes of Bain & Company.
  • That's because these firms would look to list in China or Hong Kong in order to have access to regional and international investors, and attract funds into the country, he suggested.
  • Fildes weighed in on 2020's "phenomenal" IPO activity and said that momentum is likely to continue in 2021.
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U.S. regulatory risks are driving Chinese firms to seek Hong Kong listings: Bain & Co.

SINGAPORE — Fears of Chinese companies being kicked off U.S. stock exchanges will ultimately benefit China, according to consulting firm Bain & Company.

That's because those firms would look to list in Hong Kong in order to gain access to international investors, and attract funds into the market, suggested John Fildes, expert partner at Bain & Company.

The New York Stock Exchange (NYSE) is set to delist three Chinese telecommunication giants, after making two U-turns on that decision. On Thursday, it finally said it would remove U.S.-traded shares of China TelecomChina Mobile and China Unicom, citing an executive order signed by President Donald Trump banning U.S. investments in Chinese firms with alleged ties to China's military.

But this is all to China's benefit because these companies will be, you know, doing a secondary listing in Hong Kong.
John Fildes
Bain & Company

"If it does happen, then undoubtedly, it will benefit the Hong Kong listings of these companies," Fildes said, adding that there would be an "initial price drop" because of nervousness over whether U.S. investors will come back to the stocks.

Hong Kong-listed shares of the three Chinese telecom firms plunged between 7% and 11% on Thursday after the NYSE announcement.

American flags outside the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Jan. 4, 2021.
Michael Nagle | Bloomberg | Getty Images

Fildes also told CNBC's "Street Signs Asia" that the U.S. law that requires foreign firms to comply with U.S. auditing standards has driven quite a lot of Chinese companies to look at listings elsewhere.

"But this is all to China's benefit because these companies will be, you know, doing a secondary listing in Hong Kong," he said. "If they do get delisted in the U.S., then international investors will be able to access these companies through their Hong Kong listings."

'Extremely attractive' Asian markets

It may not be just "bumps in the road" in the U.S. that are pushing companies to list in Asia, Fildes said. China and Hong Kong markets have become more appealing, even though there is "a lot of capital" to be raised in the U.S.

"We're seeing the growth of the Star Market in Shanghai as well as the easing of some rules around ChiNext in Shenzhen that are making domestic listings more attractive," he said.

The Star Market and ChiNext are Nasdaq-style technology-focused boards that have loosened regulations as part of reforms in China's financial markets.

The Asian markets are extremely attractive and there's a lot of cash around.
John Fildes
Bain & Company

Hong Kong is also "much more attractive" now, he said, noting that the exchange allows companies to list shares with weighted voting rights. That means certain shares confer more voting power than others. Bourses in Asia introduced the system, which is practiced in the U.S., to compete for initial public offerings.

"Hong Kong is definitely back up there with these new rules," he added. "Shanghai and Shenzhen are making themselves more open and attractive to tech stocks as well."

"The Asian markets are extremely attractive and there's a lot of cash around," he said.

Investors turned to stock markets in the low-rate environment and initial public offering activity in 2020 was "phenomenal" globally, said Fildes.

That momentum is likely to carry into this year. "We see, at the moment, no real reason why that's not going to continue into 2021," he said.